From March 23 to April 6, 2022, a delegation from the International Monetary Fund (IMF) conducted the annual country evaluation of Switzerland. The IMF observed that, in 2021, the Swiss economy recovered strongly from the pandemic-related downturn. For 2022, the IMF is projecting growth to continue above average, at 2.2%. However, uncertainties are high and require a forward-looking policy capable of reacting appropriately to risks such as energy shortages, threats to price stability or new waves of the pandemic. At the same time, policies should address the longer-term challenges posed by an ageing population and climate change.
The regular evaluation of the economic and financial situation of its member states, the so-called Article IV Consultation, is a core element of the IMF’s surveillance activity. In its latest country evaluation of Switzerland, the IMF’s assessment of the measures taken by the authorities to prevent lasting economic damage from the COVID-19 crisis is positive. Monetary policy and substantial support from public households have driven the rapid economic recovery. According to the IMF, however, the war in Ukraine is likely to dampen economic activity, mainly as a result of indirect factors such as energy prices, disrupted supply chains and lower global growth.
Switzerland should continue to make use of its room for manoeuvre in fiscal policy, without undermining the discipline imposed by the debt brake. This instrument ensures sound public finances and has provided the necessary flexibility to address the COVID-19 crisis. The IMF regards the Federal Council’s proposal to reduce the high extraordinary expenditure over twelve years, instead of six, as well balanced. The IMF also notes the various challenges and risks to the federal finances over the medium term, which require a prudent fiscal policy stance and medium-term strategic planning. As part of the OECD corporate tax reform, the IMF recommends targeted measures to strengthen Switzerland as a business location. The cantons should be involved at an early stage.
The IMF’s inflation forecast of 2.5 % for 2022 reflects the price pressure on commodities and energy products, as well as higher import prices. The appreciation of the Swiss franc is helping to contain domestic inflationary pressure. Likewise, upward pressure on wages appears to be limited. Nonetheless, according to the IMF, inflation risks could increase. The Swiss National Bank (SNB) should therefore continue to monitor inflation developments closely, and continually review its tools and options for a normalisation of monetary policy.
Banks’ capital levels proved to be adequate during the crisis. However, substantial growth in prices and credit in the real estate segment has caused risks to increase, above all for domestic banks. A rapid rise in interest rates could lead to a price correction in that segment. The IMF welcomes the reactivation of the countercyclical capital buffer as a measure to strengthen banks’ resilience. It is nevertheless advisable to consider additional instruments for reducing systemic financial risk in the real estate market.
The supervision of the big banks is effective and is continually improved. In the IMF’s opinion, there is a further need for action in internal bank governance and risk management. The Federal Council’s proposal to introduce a tool for providing liquidity during the process of resolution (public liquidity backstop) is welcomed.
A further political priority in the view of the IMF are the planned reforms of the first and second pillars of the pension system. This will ensure the funding of this system for the next decade, but is unlikely to be sufficient over the longer term. As regards relations with the EU, the IMF noted an interest in stabilising bilateral relations. In addition, the IMF acknowledged Switzerland’s efforts to achieve its objectives on reducing CO2 emissions and securing energy supplies.